COMMODITY MARKET

WHAT IS COMMODITY MARKET?

Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.

This article focuses on the history and current debates regarding global commodity markets. It covers physical product (food, metals and electricity) markets but not the ways that services, including those of governments, nor investment, nor debt, can be seen as a commodity. Articles on reinsurance markets, stock markets, bond markets and currency markets cover those concerns separately and in more depth. One focus of this article is the relationship between simple commodity money and the more complex instruments offered in the commodity markets.

WHEN DID COMMODITY MARKET START IN INDIA?

Organized commodity derivatives in India started as early as 1875, barely about a decade after they started in Chicago. However, many feared that derivatives fuelled unnecessary speculation and were detrimental to the healthy functioning of the markets for the underlying commodities. As a result, after independence, commodity options trading and cash settlement of commodity futures were banned in 1952. A further blow came in 1960s when, following several years of severe draughts that forced many farmers to default on forward contracts (and even caused some suicides), forward trading was banned in many commodities considered primary or essential. Consequently, the commodities derivative markets dismantled and remained dormant for about four decades until the new millennium when the Government, in a complete change in policy, started actively encouraging the commodity derivatives market.  Since 2002, the commodities futures market in India has experienced an unprecedented boom in terms of the number of modern exchanges, number of  commodities allowed for derivatives trading as well as the value of futures trading in commodities, which might cross the $ 1 Trillion mark in 2006. However, there are several impediments to be overcome and issues to be decided for sustainable development of the market.

WHICH ARE DIFFERENT TYPES OF COMMODITY TRADING MARKETS?

SPOT TRADING: Spot trading is any transaction where delivery either takes place immediately, or with a minimum lag between the trade and delivery due to technical constraints. Spot trading normally involves visual inspection of the commodity or a sample of the commodity, and is carried out in markets such as wholesale markets. Commodity markets, on the other hand, require the existence of agreed standards so that trades can be made without visual inspection.

Forward contracts:

A forward contract is an agreement between two parties to exchange at some fixed future date a given quantity of a commodity for a price defined today. The fixed price today is known as the forward price.

Futures contracts: A futures contract has the same general features as a forward contract but is transacted through a futures exchange.

Commodity and futures contracts are based on what’s termed forward contracts. Early on these forward contracts — agreements to buy now, pay and deliver later — were used as a way of getting products from producer to the consumer. These typically were only for food and agricultural products. Forward contracts have evolved and have been standardized into what we know today as futures contracts. Although more complex today, early forward contracts for example, were used for rice in seventeenth century Japan. Modern forward, or futures agreements began in Chicago in the 1840s, with the appearance of the railroads. Chicago, being centrally located, emerged as the hub between Midwestern farmers and producers and the east coast consumer population centers.

In essence, a futures contract is a standardized forward contract in which the buyer and the seller accept the terms in regards to product, grade, quantity and location and are only free to negotiate the price.

Hedging: Hedging, a common (and sometimes mandatory) practice of farming cooperatives insures against a poor harvest by purchasing futures in the same commodity. If the cooperative has significantly less of its product to sell due to weather or insects, it makes up for that loss with a profit on the markets, since the overall supply of the crop is short everywhere that suffered the same conditions.

Whole developing nations may be especially vulnerable, and even their currency tends to be tied to the price of those particular commodity items until it manages to be a fully developed nation. For example, one could see the nominally fiat money of Cuba as being tied to sugar prices, since a lack of hard currency paying for sugar means less foreign goods per peso in Cuba itself. In effect, Cuba needs a hedge against a drop in sugar prices, if it wishes to maintain a stable quality of life for its citizens it is used to protect the client

Delivery and condition guarantees: In addition, delivery day, method of settlement and delivery point must all be specified. Typically, trading must end two (or more) business days prior to the delivery day, so that the routing of the shipment can be finalized via ship or rail, and payment can be settled when the contract arrives at any V.  Modern Commodity Exchanges

TYPES OF TRADING

TYPES OF TRADING

There are several types of trading styles that persons seeking to profit from short term trades in the market may wish to use. Here is a brief description of the most widely used short term trading styles.

• Day Trading

Day traders buy and sell stocks throughout the day in the hope that the price of the stocks will fluctuate in value during the day, allowing them to earn quick profits. A day trader will hold a stock anywhere from a few seconds to a few hours, but will always square off all of those stocks before the close of each day. The day trader does not own any positions at the close of any day therefore  immune to overnight risks. The objective of day trading is to quickly get in and out of any particular stock for a profit  on an intra-day basis.

Day trading can be further subdivided into a number of styles, including:

Scalpers: This style of day trading involves the rapid and repeated buying and selling of a large volume of stocks within seconds or minutes. The objective is to earn a small per share profit on each transaction while minimizing the risk.

Momentum Traders: This style of day trading involves identifying and trading stocks that are in a moving pattern during the day, in an attempt to buy such stocks at bottoms and sell at tops.

• Swing Traders

The principal difference between day trading and swing trading is that swing traders will normally have a slightly longer time horizon than day traders for holding a position in a stock. As is the case with day traders, swing traders also attempt to predict the short term fluctuation in a stock's price. However, swing traders are willing to hold stocks for more than one day, if necessary, to give the stock price some time to move or to capture additional momentum in the stock's price. Swing traders will generally hold on to their stock positions anywhere from a few hours to several days.

Swing trading has the capability of providing higher returns than day trading. However, unlike day traders who liquidate their positions at the end of each day, swing traders assume overnight risk. There are some significant risks in carrying positions overnight. For example news events and earnings warnings announced after the closing bell can result in large, unexpected and possibly adverse changes to a stock's price.

• Position Trading

Position trading is similar to swing trading, but with a longer time horizon. Position traders hold stocks for a time period anywhere from one day to several weeks or months. These traders seek to identify stocks where the technical trends suggest a possible large movement in price is likely to occur, but which may not be fully played out for several weeks or months.

• Online Trading

Online trading is not really properly described as a trading style. Rather, online trading is simply a term that refers to the medium used to enter and execute trades. Online traders, which can include long term investors, as well as day, swing and position traders, use either an Internet connection or a direct access online trading platform to access and execute trades with Web based brokers.

Types of Orders

Trading -Types of Orders
Placing orders correctly is probably one of the most important aspects of trading. It is vital that you understand and use the correct order when you trade.
 

• Market Order

This simply tells your broker to buy or sell at the current market price. This is preferable in fast market conditions or when you want to ensure that a position is taken and to protect against missing an opportunity. The broker will attempt to buy or sell the security at the current market rate.

• Limit Order

This order can be used to enter or exit a trade. It specifies a price that the trader is willing to pay or accept (or better). A buy limit order is placed below the current market price and states the highest price the trader is willing to pay for a purchase. A sell limit order is placed over the current market price and is the lowest price the seller is willing to accept.
If you already have a position in the market e.g. you were long the market, you could use a limit order to tell the broker at what price you wanted to sell once your price objective had been reached. You could also use the order to tell the broker at what price you want to enter the market. If ABC Company was trading at 45.50 and you wanted to buy that company at 44.00 you could use a buy limit order to take you into the market.

• Stop Loss Order

Probably the most important and most commonly used order. It can be used to establish a new position, limit a loss on an existing position, or protect a profit. A stop order specifies a price at which an order is to be executed. A buy stop is placed above the market and a sell stop is placed below the market. (Which is the opposite of the limit order). Once the stop price is hit, the order becomes a market order and is executed at the best price possible. On a long position, a sell stop is placed below the market to limit a loss. After the market moves higher, the stop can be raised to protect the profit (a trailing stop). You could also use the sell stop to enter the market as the market declines. A buy stop could be placed above the market to initiate a new long position or close an existing short position. Since the stop order becomes a market order, the actual 'fill' price may be beyond the stop price, especially in a fast market.

• Stop Limit Order

This order is a combination of both a stop and a limit order. This type of order specifies both a stop price where the trade is activated and a limit price to close the position. Once the stop is elected, the order becomes a limit order. This type of order is useful when the trader wants to buy or sell a breakout, but wants to control the price paid or received.
 

• Market On Open (MOO)

This order as the name implies will be executed at the opening price of the market. As market openings can tend to be volatile it can be difficult for a broker to get the exact opening price and the settlement price may be different from the opening price.

• Market On Close (MOC)

Also as the name implies this order is executed on the close of the market. In some markets the actual closing price may be different from the settlement price particularly if it's a fast moving market.

• Market If Touched (MIT)

Not all exchanges accept MIT orders. Like the stop order the MIT order is executed if the market price reaches the MIT price you have elected. Once the market touches your elected price the MIT order becomes a market order.
 

• Good Till Canceled

This type of order is also know as an 'open order' the order remains in effect until the order is executed or the trader cancels the order.

• Fill Or Kill (FOK)

This order is sent to the pit and should be executed immediately. If the order cannot be filled immediately the order is canceled.

• All Or None

This is essentially a limit order to buy or sell a security. The important point of this order is that the total order must be filled or none of it.

• Day Order

An order that terminated automatically at the end of the day. If you have placed an order to buy or sell a security at a particular price and it is not filled the order is terminated at the end of the day.
The above orders are the most common orders. Some securities may not use all of the above orders, as each market is different. It is important when you first start using orders that you have a chat with your broker and just go over the order procedure with him.

Intrayday

Intraday Trading

Intraday Trading, also known as Day Trading, is the system where you take a position on a stock and release that position before the end of that day's trading session. Thereby making a profit for yourself in that buy-sell or sell-buy exercise. All in one day. You are not concerned about whether the market is going down or up. You are not concerned with market sentiments. You are not concerned with the fundamental strengths (or the lack of it) of any company. All you need to predict is that the stock price will either rise or fall very sharply in the course of the day. When you take up day trading, the rules that may have helped you pick good stocks or find great money makers over the years, trading 'normally', will no longer apply. This is a different game with different rules. All of the methods that are used to identify stocks that are appropriate for normal delivery-based trading are dependent on either technical analysis, fundamentals or insider information. Technical analysis with charts is a way of using historical price/volume patterns to predict future behavior. Fundamentals deal with the market strength of a company, involving detailed study of balance sheets, branding, positioning, etc. None of these, on its own, hold good for day trading. The day trader's choice of scrips and positions has to work out in a day. There's no waiting until tomorrow to see how the charts play out before committing capital. If the day trader sees an opportunity, he has to go for it. NOW. Or it's gone. Things can change drastically in minutes. When it's time to buy or sell, it's time to buy or sell, and that's all there is to it. Day trading can be a great way to make money all on your own. It's also a great way to lose a ton of money, all on your own. Not everyone can be a day trader, nor should everyone try it. If the idea of being in charge of your own business and your own trading account is exciting, then day trading might be a good career option for you.

Fundamentals

What are the objectives of the intraday trader? One point objective: to make profits. As much as possible. Simple. Whether the market is going up or down, we are not concerned. Whether there is a recession or not, we don't care. We want our daily profits. Simple. But to realise this 'simple' objective we have to undertake one very difficult step. That is:

• Pick out a few stocks that can possibly give good profits through Intraday Trading. It is not physically possible to track in real-time all of the 1000+ scrips listed at NSE every day to see which is going up or down sharply. So we need to make a few educated guesses and narrow down our watch-list to 5-to-7 stocks that show promise for the day.
• The process of finding these stocks is not easy. Because none of the normal methods used in locating stocks for investment work here.
• Statements like "ABC has gained by 25 points today" is good news to many players in the stock market. But it has no meaning in intraday trading if ABC has opened 24 points higher than yesterday's close and has then risen by only 1 point throughout the day.
• On the other hand, if ABC has opened at +1, gone down to -5 and then rallied to close at +25, it will be the toast of intraday traders for that day.
• You can make your profits only if ABC was spotted in advance and entry/exit points were proper. It is here that IntradayTrade dot Net can help, by identifying potential winners in advance.
• In another scenario, company GHF is in the red as it has lost 50 points. People who have bought shares of GHF have lost out. However, if in this journey of -50, it has gone down to -80 then recovered to +5, finally ending at -50, intraday traders have had a field day.
• In all the daily reports and comments given by 'experts' GHF will be shunned as a loser and the public will be strongly advised to stay away from GHF. But to intraday traders, its a winner.
• How do you lay your hands on the likes of ABC and GHF before all this happens? We at IntradayTrade dot Net specialise in giving you the names of such stocks in our daily 'Suggests'. Check our past performance.
• Same happens when the NIFTY falls. If the NIFTY is rallying strong and moving up fast, all major stocks are also rising. Finding stocks in this situation for intraday trading in LONG is not difficult, as everything is rising. But when the NIFTY is going down, all are going down with it. Finding that exception which has gone up even on those days, or has shown enough up-down range to give intraday profits in LONG, is the real challenge.
• IntradayTrade dot Net has won these challenges many times and have 'Suggested' stocks that have given profits of at least 1-to-2% even on such 'bad' days in LONG.

You can trust IntradayTrade dot Net to overcome this one fundamental task of finding which stocks to track to realise maximum profits through intraday trading. Irrespective of market conditions.

How to go about it?

Like any stock trader, to make money through intraday trading at the stock market you must have a trading plan, set limits and stick to them. You must trade based on the data on the screen — not based on emotions like hope, fear, doubt and greed. To put that plan in action you need do some preparation and define an objective. That's a basic strategy for any endeavor, whether it's running a marathon, changing your car, or taking up day trading. Day traders have to move quickly, so they also have to take decisions quickly. You must also have patience. Some days there is nothing good to buy. Other days it seems like every trade can bring you money. But everything just turns around as soon as you really put in some money. Be patient, and take a calculated decision. What if it's a bad decision? Well, of course some decisions are going to be bad. That's the risk of making any kind of an investment, and without risk, there is no return. Anyone playing around in the markets has to accept that. Yes, a lot of day traders lose money, and some lose everything that they start out with. Many others don't lose all of their trading capital, but they leave because they just decide that there are better uses of their time and better ways to make money. Yes, most day traders fail — about 80 percent in the first year. But so do a large percentage of people who start new businesses or enter other occupations. But two good day trading practices help limit the effects of making a bad decision:

1. The first is the use of stop and limit orders, which automatically close out losing positions.
2. The second is closing out all positions at the end of every day, which lets traders start fresh the next day.

Because they close out their positions in the stocks they own at the end of the day, whether winning or losing, some of the risks are limited. There is no hangover. Each day is a new day, and nothing can happen overnight to disturb an existing profit position.

Day Trading as a hobby?

Day Trading as a hobby is a bad idea. Also, trading without a plan and without committing the time and energy to do it right will surely bring losses. Professional traders are betting that there will be plenty of suckers out there, because that creates the losers that allow you to take profits in a zero-sum market.

Day Trading part-time?

Can you make money day trading part-time? Yes, you can, and some people do. To do this, they approach trading as a part-time job, not as a little game to play when they have nothing else to do. A part-time trader may commit to trading three days a week, or to closing out at noon instead of at the close of the market. A successful part-time trader still has a business plan, still sets limits, and still acts like any professional trader would, just for a smaller part of the day or week.

Trading

Trading

The London Stock Exchange

Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order of buying or selling.
Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of stock exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders.
Actual trades are based on an auction market model where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any ask price or bid price for the stock, respectively.) When the bid and ask prices match, a sale takes place, on a first-come-first-served basis if there are multiple bidders or askers at a given price.
The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery.

The New York Stock Exchange is a physical exchange, also referred to as a listed exchange – only stocks listed with the exchange may be traded. Orders enter by way of exchange members and flow down to a floor broker, who goes to the floor trading post specialist for that stock to trade the order. The specialist's job is to match buy and sell orders using open outcry. If a spread exists, no trade immediately takes place—in this case the specialist should use his/her own resources (money or stock) to close the difference after his/her judged time. Once a trade has been made the details are reported on the "tape" and sent back to the brokerage firm, which then notifies the investor who placed the order. Although there is a significant amount of human contact in this process, computers play an important role, especially for so-called "program trading".
The NASDAQ is a virtual listed exchange, where all of the trading is done over a computer network. The process is similar to the New York Stock Exchange. However, buyers and sellers are electronically matched. One or more NASDAQ market makers will always provide a bid and ask price at which they will always purchase or sell 'their' stock^.
The Paris Bourse, now part of Euronext, is an order-driven, electronic stock exchange. It was automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry exchange. Stockbrokers met on the trading floor or the Palais Brongniart. In 1986, the CATS trading system was introduced, and the order matching process was fully automated.
From time to time, active trading (especially in large blocks of securities) have moved away from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs Group Inc. and Credit Suisse Group, already steer 12 percent of U.S. security trades away from the exchanges to their internal systems. That share probably will increase to 18 percent by 2010 as more investment banks bypass the NYSE and NASDAQ and pair buyers and sellers of securities themselves, according to data compiled by Boston-based Aite Group LLC, a brokerage-industry consultant.
Now that computers have eliminated the need for trading floors like the Big Board's, the balance of power in equity markets is shifting. By bringing more orders in-house, where clients can move big blocks of stock anonymously, brokers pay the exchanges less in fees and capture a bigger share of the $11 billion a year that institutional investors pay in trading commissions as well as the surplus of the century had taken place

Stock Market

A stock market or equity market is a public entity (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.

The size of the world stock market was estimated at about $36.6 trillion at the start of October 2008. The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy. The value of the derivatives market, because it is stated in terms of notional values, cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event not occurring). Many such relatively illiquid securities are valued as marked to model, rather than an actual market price.

The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The largest stock market in the United States, by market capitalization, is the New York Stock Exchange (NYSE). In Canada, the largest stock market is the Toronto Stock Exchange. Major European examples of stock exchanges include the Amsterdam Stock Exchange, London Stock Exchange, Paris Bourse, and the Deutsche Börse (Frankfurt Stock Exchange). In Africa, examples include Nigerian Stock Exchange, JSE Limited, etc. Asian examples include the Singapore Exchange, the Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV.